Ben Bernanke wins second term as Fed chief in close vote after bitter opposition

The Associated Press ~ staff The News
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WASHINGTON - Embattled U.S. Federal Reserve chairman Ben Bernanke won confirmation for a second term Thursday, but only by the closest vote ever for the crucial post and after withering criticism from lawmakers for bailing out Wall Street while other Americans suffered in recession.


The Senate confirmed Bernanke for a new four-year term by a 70-30 vote, a seemingly solid majority, but 14 votes worse than the closest previous vote for a Fed chairman.


President Barack Obama hailed the Senate's action and praised Bernanke's "wisdom and steady leadership."


The Senate battle over Bernanke's confirmation has been a test of central bank independence, a crucial element if the Fed is to carry out unpopular but economically essential policies. Its decisions on interest rates can have immense consequences, from the success or failure of the largest companies to the typical home-buyer's ability to get an affordable loan to the price of cereal at the grocery or gas at the corner station.


Created by Congress in 1913 after a series of bank panics, the Federal Reserve is an independent agency, supposedly outside politics, but its chairman is typically assailed by lawmakers and others when the economy falls and jobless ranks lengthen.


"Bernanke fiddled while our markets burned," huffed Richard Shelby, of Alabama, the top Republican on the Senate Banking Committee, during Thursday's debate. "Ben Bernanke's Federal Reserve played a key role in setting the stage for the financial crisis."


Shelby and other opponents blame Bernanke for failing to spot problems leading up to the crisis, for lax bank regulation and for not cracking down on dubious home mortgage practices. All those missteps contributed to the recession, they contend.


Supporters see it far differently, crediting him with preventing the Great Recession from turning into the second Great Depression.


"The chairmanship of Ben Bernanke has in no small measure made it possible for this nation to avoid a catastrophe," said Senate Banking Committee chairman Senator Christopher Dodd (D-Conn.).


Supporter Chuck Schumer (D-N-Y.) worried that the bitter fight over the nomination would send "the message that the Federal Reserve and its monetary policy decisions are under the thumb of Congress. Businesses will be faced with the prospect that the Fed might not be able to do what's necessary for the economy because of pressure from Congress."


The vote on his confirmation came at nearly the last possible moment - Bernanke's current term expires Sunday.


The confirmation vote was preceded by a critical preliminary ballot to block a filibuster by opponents. He needed 60 votes rather than a simple majority and got 77, to 23 against. The closest previous final confirmation vote for a Fed chairman was 84-16 for Paul Volcker's second term in 1983 following another severe recession.


In the final vote, 11 Democrats and an independent joined 18 Republicans against Bernanke. They included senators facing potentially difficult re-elections this year, such as Democrats Arlen Specter of Pennsylvania and Barbara Boxer of California. Seven Democrats stuck with their party's majority on the vote to overcome the filibuster, but then switched to vote against confirmation. Both party leaders - Democrat Harry Reid of Nevada and Republican Mitch McConnell of Kentucky - voted to confirm. John McCain, the 2008 Republican presidential candidate, voted against him.


After the vote Thursday, Treasury Secretary Timothy Geithner said, "The Senate did the right thing. Chairman Bernanke will continue to play a vitally important role in guiding the nation's economy."


First appointed by President George W. Bush and then re-nominated by President Barack Obama, Bernanke found himself without a broad partisan constituency in the Senate.


"Although the Fed can print money, it can't print political capital," said Karen Shaw Petrou, managing partner at Federal Financial Analytics, a consulting firm that advises financial institutions.


Bernanke's role in bailing out Wall Street has angered many Americans, who are still struggling under double-digit unemployment, stagnant paycheques, cracked nest eggs and record home foreclosures. In an election year in which the economy's health is still precarious, senators were hearing those complaints loud and clear.


"A vote for Ben Bernanke is a vote for bailouts," said Senator Jim Bunning (R-Ky.), a longtime critic.


Bernanke has especially upset lawmakers with his support of a US$182-billion rescue of insurance giant American International Group Inc. Hefty bonuses to AIG exe

Organizations: U.S. Federal Reserve, Senate Banking Committee, Democrats American International Group Inc. Federal Financial Analytics

Geographic location: California, WASHINGTON, Kentucky Pennsylvania Nevada US

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